Cupertino, CA-based Apple just released one of the best earnings reports in the history of capitalism.
In short, they crushed it-sending Apple stock to a fresh 52-week high.
Take a look:
In a record setting first quarter, Apple sold an astounding 73 million devices, including:
- 5.2 million Macs.
- 15.4 million iPods.
- 37 million iPhones.
- And 15.4 million iPads.
Keep in mind that's just devices. Apple also takes a 30% cut of all the music, apps, movies and books sold in the online iTunes Store, and its retail operation is a gem within itself.
All told, it's a remarkable growth story – and one that's far from over.
But that is only part of why you should buy Apple stock. Its balance sheet boasts 100 billion more reasons showing the company is a solid "Buy."
Ironically, Apple has so much cash its stock could actually be considered cheap.
Apple reported $97.6 billion in cash, but given the rate the company was selling products in the fourth quarter, that figure is surely higher now.
Today, Apple's cash-on-hand has to be around $100 billion. This mounting pile of cash has been the source of much speculation in recent years, and the issue was again raised by analysts last week during the earnings conference call.
Judging from Chief Financial Officer Peter Oppenheimer's response, it was clear the company has plans for it.
According to Oppenheimer:
"We're examining all uses of our cash balance, what we might do in the supply chain, what we can do from an acquisition perspective and otherwise. Since I don't have any perspective to share with you today, specifically on dividends or buybacks, other than again, we are actively discussing the cash balance."
It's my expectation Apple will surprise the market by deploying its cash hoard in a mergers and acquisitions (M&A) spree that helps reform its product development.
At this point, the cash is pouring in too fast to pay out dividends and buy back stock. They need a strategy to buy technology, like ARM Holdings PLC (Nasdaq: ARMH), which Apple helped found in 1990 and now sources chips from.
Apple has a track record of making small strategic acquisitions, such as chip designer P.A. Semiconductor in 2008 (which allowed Apple to design the A4 and A5 chips used in the iPhone and iPad), and music service Lala in 2009, which provided technology for iCloud.
So what Apple decides to do with its cash in the near term will ultimately determine what impact the company will have on our lifestyle in the future.
That's why I believe it's time to buy Apple Inc. (**) – as it works to deploy its cash and continue enhancing the user experience for its customers.
Apple Stock is a "Buy"
When you get down to it, all you need to know is that Apple:
- Is debt free;
- Has about $100 billion in cash;
- Is growing demand at a rate of 100%;
- And will be putting its cash to work in the future.
Apple is unique among companies in that it could be rated AAA if it wanted to issue debt. Logically, though, why would it? It's built up the largest cash position in history.
In fact, it's the sheer size of the cash hoard that makes this company so interesting. Apple has enough money to change entire industries just by its business demands.
Today, Apple has grown into the largest consumer of chips in the world. Their lineup of tablets, computers, and cell phones has grown to such a degree that the mobile computing trend that Apple launched and dominates is now the driver of chip designs for the future.
This is where I believe Apple will be putting its cash to work. Apple doesn't need to buy back shares or pay a dividend if it has a better use for that cash.
I expect to see Apple purchase chip designers and invest in its capacity to manage its product-line sourcing. I think its next major product will see its early product cycle kept in-house.
Meanwhile, the growth rates at Apple are simply staggering. iPad revenue increased by 100% year-over-year in the fourth quarter alone, while iPhone revenue increased by 133% year-over-year.
You can expect this to continue as Apple cranks out more unique and compelling products in the years ahead.
Apple has the capacity to change the lifestyle of its consumers. While Steve Jobs is no longer around, his impact will be felt for years to come.
In a world of uncertain economic outcomes, Apple rises above the storm as a safe location to park capital. While it currently does not pay a dividend, that could change soon. Even if it doesn't, the rate at which the company is building up its cash hoard allows an investor a comfortable night's sleep. Apple is about as safe a company as you can invest in.
Let's pick up 50% of our Apple shares in the near future, with the rest entered as good-"til-cancelled around the breakout area of the latest earnings report. This should be retested at some point and will give a patient investor a good location to add to their long-term holdings.
(**) Special Note of Disclosure: Jack Barnes has no interest in Apple Inc. (NASDAQ: AAPL).
Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.
Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Petroleo Brasileiro SA (NYSE ADR: PBR).
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